In contrast, the U.K. adopted fiscal austerity in 2010, but did
so amid an extremely easy monetary policy regime. Real interest
rates in the U.K. are poised to be significantly negative over a
secular horizon. Still, at PIMCO, we think the U.K. is
implementing what is probably the best combination of fiscal and
monetary policies to address deficit reduction, as they
have an eye to structural issues.

They are trying to reduce spending and public programs that are
focused on current consumption and thus arguably not contributing
to future economic growth. Also, they are reducing certain
corporate tax rates, increasing incentives for investment, and
trying to promote activities that have what we would call high
multipliers to economic growth – all so that the future state of
the U.K. economy will be, if all goes according to plan, in a
much more stable and a much more competitive position.

Despite this dark outlook, PIMCO's Parikh recomends the U.S.
follow down a similar path, and focus on spending more on R&D
and energy.

From PIMCO:

We think the U.S. could learn from the U.K. in this regard. To
achieve meaningful economic growth in the U.S. over a secular
horizon, we strongly recommend a combination of revenue-side and
expenditure-side changes in policy that are structural in nature.
In our view, a growing percentage of U.S. expenditures
are income transfers to the household sector that do not address
the long-term structural issues of high unemployment and a dearth
of job creation.

We see great economic benefit from shifting some of that spending
from consumption to investment – for example, to the energy
sector, where the U.S. has a large deficit vs. the rest of the
world. More spending on research and development of domestic
energy sources would not only create jobs today, but would also
reduce the U.S. trade deficit in the future. We also advocate
more spending on other research and development and on education,
because ultimately, if the U.S. continues to fall in education
standards and in its share of global patents and global
innovation, then this reduces its ability to be a world leader in
future economic growth.

Parikh may be correct about the income transfer story, but
austerity measures in the U.S. are likely to have a similar
impact to those in the UK, the slowing of short-term growth. Any
slowing in growth will impact government tax revenues, which
will, in turn, inhibit our ability to pay down debt. If debt to
GDP rises,
like it appears to be doing in the UK, then austerity is
solving little.